A360
Key Takeaways✦ Atlas AI
01
Israel's first-quarter GDP fell 3.3% due to war-related business shutdowns, exceeding expectations.
02
Consumption and business activity were significantly impacted, showing the economic cost of recent conflicts.
03
Future economic growth hinges on maintaining ceasefires across regional conflict zones.
Atlas AI
Israel's economy experienced a significant downturn in the first quarter, contracting by 3.3% according to seasonally adjusted annualized figures. This slump, deeper than economists anticipated, reflects the immediate economic repercussions of the recent conflict, which triggered widespread business disruptions and security-related shutdowns.
The nation's statistics bureau reported that both private and public consumption saw notable declines, dropping by 4.7% and 4.8% respectively. The business sector also registered a contraction, with its gross domestic product falling by 3.1%, and per capita GDP decreased by 4.5%.
Security Measures Halt Economic Activity
The economic contraction was directly linked to security measures implemented during a period of heightened conflict. For over six weeks, Israeli authorities imposed restrictions on public gatherings and closed schools, significantly curtailing economic and business operations. These measures were a response to missile and drone attacks from Iran and its proxies, leading to a large-scale mobilization of army reserves.
The disruptions followed direct strikes by the US and Israel on Iranian targets which began in late February. Iran's retaliatory actions included launching hundreds of projectiles toward Israel, prompting the government to enact extensive safety protocols. This led to an estimated loss of over 100,000 personnel from the workforce due to military service.
Comparison to Previous Economic Shocks
While the recent economic dip was substantial, it was less severe than the contraction experienced in the quarter following a 2025 conflict. In that prior instance, GDP fell by 4.3%, with businesses facing even more prolonged shutdowns. The intensity of Iran's retaliation was higher then, as its ballistic missile fire did not involve other countries being targeted.
Despite the more severe economic impact in 2025, the Israeli economy demonstrated resilience, recovering and accelerating growth in the latter half of that year. This historical performance offers a point of comparison for the current economic challenges and the potential for future recovery.
Looking ahead, the central bank and finance ministry have revised their 2024 growth projections downward to 3.8%, a decrease from earlier estimates. Achieving these targets hinges on sustained ceasefires across multiple fronts, including Iran, Lebanon, and Gaza. The nation's economy lost approximately 8.6% of its annual GDP in the two years preceding 2025 due to ongoing conflict, particularly the war in Gaza sparked by the October 2023 Hamas attacks.
